It’s Fraud Awareness Week. By working together, talking about scams and reporting them, we can keep each other safe. #TogetherLetsFightScams

Cash splashes across social media, and magically people watch $500 become $5,000. Who wouldn’t want to get in on that? That’s life-altering money.

Unfortunately, there is no magic way to make money out of nothing. Even if it’s called an ‘investment’, if something sounds too good to be true, it will be just that.

Way too often, these kinds of promises come from Ponzi and pyramid selling schemes. 

Pyramids exploit the trust in our communities

So many pyramid schemes take advantage of the trust there is in our communities – often Māori and Pasifika. What connects us can be used against us – if we’re not vigilant.

Just this last year:

Fraud Awareness Week is an opportunity to keep an eye out for loved ones – especially if they say they’ve joined a multilevel marketing (MLM) business or have been guaranteed huge returns on an investment they’re making. We need to keep each other safe just in case these are scams.

Why scammers love a pyramid

The pyramid-type frauds – the ones we need to look out for ­– rise up out of nothing and keep popping up like toxic mushrooms… as long as there are more people joining and throwing in money at the bottom.

What ends up happening (at least until it all comes toppling down) is that those towards the top are the ones who get paid most – and the ones who come in last at the bottom are the ones who stand to lose their money.

Do you know the difference between a Ponzi and a pyramid selling scheme?

  • Pyramid selling schemes make money by recruiting more and more people to sell – not from the goods or services being sold. The pyramid grows as long as there are more people signing up, paying into the scheme and enriching those at the top.
  • Ponzi schemes make money from more and more people putting in their funds regularly – not from, say, investing in a business (as you would with shares). The pyramid grows as long as more ‘investment’ money pours in – and it’s that cashflow from new members that provides the ‘investment returns’ for those who joined earlier.

Both kinds of pyramids are against the law, as is receiving cash from them without paying taxes on it. Many use cryptocurrencies. They’re typically promoted by misleading us about what we’ll get out of it – the promised returns.

New Zealand's worst Ponzi scheme ever was run by David Ross of Ross Asset Management. More than 1,200 people were scammed out of $115 million.

Remember, any investment scheme that gets its income from recruiting new members is considered by law to be a pyramid scheme, and is illegal.

Spotting a pyramid scheme

Pyramids – whether selling schemes with members or Ponzi schemes with investors – can be tricky to identify at first.

They can appear under the guise of mentorship, life coaching or personal development. Gifting circles, where you might be required to pay in a gift of, say, $5,000 to join, can also be pyramids.

And they don’t always take the shape of pyramids – they can be displayed in the shape of a lotus, for example. Instead of rising to the top of the pyramid, you’re given the goal to get to the centre of the lotus.

Another reason identifying them can be tough is because there are legitimate MLM companies in New Zealand that are structured in a similar way. The salespeople are incentivised to recruit other salespeople. These businesses are legal, and they offer real products and services, not gimmicks.

But again, if the group or company makes money not by selling a product, but through recruiting new members, it’s a scam. If you need to ‘pay to play’ – either to join, buy heaps of products or for training – it’s time to dig deeper. Sometimes you need to do your research and ask a few pointed questions to flush it out.

If you’re climbing a pyramid, jump off early!

You may find yourself, your loved ones or your community swept up in pyramid mania. The key is to jump off as soon as you realise it’s heading in that direction. The higher you get, the more precarious it gets.

It would feel awful if you had unwittingly recruited your family, friends, and community – putting in money no one can afford to lose.

Let’s look out for ourselves, each other, and especially our communities, which can be prime targets for fraudsters.

This year the Commerce Commission has been focusing on pyramid schemes. If you’re interested in learning more on how these work and how to stay safe, they have great information here.

Key to remember about pyramids

  • There is no magic way to make money out of nothing. Schemes that promise to do this are scams.
  • Pyramids don’t always look like pyramids – they might be shown in the shape of a flower, for example. But in reality, they are pyramid schemes.
  • If you participate in the pyramid, you could get into trouble yourself when it all unravels. Not paying tax on cash you receive or ‘investment’ returns is illegal.
  • If it turns out to be a fraud, and you’ve unwittingly recruited friends or family members, it would feel pretty horrible knowing you all have lost money.

Together, let’s fight scams! Here's more on this year's Fraud Awareness Week.


Comment (1)

Gravatar for Albert


7:37pm | 25 Jan 2022

Hello Tom Hartmann, Thanks for your Fabulous post on “How to spot a pyramid scam.” Also, you well described the difference between the Pyramid scheme & Ponzi Scheme.